Saturday, September 13, 2014

Weekly Recap: Commodities Collapse and E-Mini's Consolidate ahead of 3rd Week of September

Wow, what a 2nd week of September we had!Gold and Crude Oil prices
collapsed to 9-month lows, and the Equity markets began to show their first
signs of weakness in a very long time.
Europe is dealing with a mess, and Chinese data suggests there may be
more on the way!

If you missed the action this
week, here’s your chance to catch up and be ready for next week!

European and US stock indices
ground lower all week, commodity prices fell and the dollar only strengthened
as global markets prepared themselves for next week's Fed meeting.

Anticipation is building that the FOMC will make material changes to the
way it talks about its policy exit. On Tuesday, CNBC's Fed watcher
Liesman said there was a good chance the Fed could alter or drop its
"considerable time" language next week, as both hawks and doves have
been increasingly critical of "date-based forward guidance" versus an
economy-driven policy.

In Europe, attention has been squarely focused on the upcoming Scottish
independence referendum as for the first time polling data has
shifted enough to make a UK break up a distinct possibility.

In Japan, the final reading of Q2 GDP showed the measure to be even
worse than the first go-round, raising hopes the BoJ may ride to
the rescue after all, helping the Nikkei gain 1.5% on the week.

For the week, the DJIA fell 0.9%, the S&P declined 1.1%
and the Nasdaq slipped 0.3%.

UK financial markets and the pound have
been unhinged by poll on the Scotland independence referendum on September
18th. A poll out last weekend put the "Yes" (to independence)
camp ahead of the "No" option for the first time, driving a sharp
selloff in the pound, banks and energy companies with North Sea operations.
Later polls showed the "No" vote ahead, however in each case the
"undecided" vote was 10% or more, making it too close to call. If
Scotland were to secede, there would be elaborate negotiations to sort out the
new nation's currency, how existing debts would be divvied up between Scotland
and England, and much else besides. GBP/USD hit nine-month lows around 1.6050
mid-week.

The 10-year yield drifted higher all week, pushing above 2.60% on Friday, its
highest level in nearly two months. USTs followed yields higher in Eurozone,
while plenty of new supply sparked selling, a setback from the roaring market
in 2014. Selling was also driven by jitters about Fed policy.

The ceasefire holds in Ukraine, despite
ongoing reports of breaches by both sides. Ukraine President Poroshenko has
gone to great lengths to emphasize the need for diplomacy in resolving the
conflict with Russia, and even agreed to delay trade sections of EU-Ukraine
Association Agreement until the end of 2015 in order to assuage Moscow's
feelings. The US and the EU launched a second round of sanctions on Russia,
restricting access to its financial markets and punishing various banks and
energy companies.

On the commodities front, both gold and
oil futures have continued to fall lower this week on a variety of factors.
Gold futures fell to the lowest point in eight months this week as continuing
improvements in US economic growth plus the strong dollar curbed demand for the
metal as a haven asset. But it is the increasing likelihood of higher interest
rates that is ultimately cutting gold off at the knees. Over the last month the WTI futures plummeted
to eight-month lows around $90.50as
of Thursday from around $98 in early August, driven by the easing of some
geopolitical conflicts and renewed dollar strength. WTI fell 1.1% on the week,
while Brent has fallen even harder, down 3.7% on the week, dropping below $100
for the first time in about a year.

Apple unveiled its new, larger iPhone 6
and 6+ models and its highly anticipated Apple Watch device this week. The
new iPhones have larger 4.7" and 5.5" screens, and as of Friday the
large screen model had already sold out online. Reports suggested Apple could
ship up to 80M iPhone 6 units by the end of Q4, making for its biggest quarter
of sales ever, by a broad margin. The Apple Watch received somewhat mixed
reviews, however it will not launch until early next year.

Demand for Chinese e-commerce giant Alibaba's IPO was so strong that the underwriters
closed their books early and will likely raise the price range to around
$70/share from the initial $60-66/share range. The final IPO pricing is
expected on September 17th with trading to begin the next day.

The dollar rally continued this week, with the trade's center of gravity
shifting from low-yielding to high-yielding end of the currency spectrum.
EUR/USD was around 14-month lows after testing 1.2860 on Thursday. EUR/CHF
ticked up off the 1.20 floor after the SNB's Moser reiterated that the SNB
could implement negative interest rates if the floor was under threat. A weaker
Yen supported Japanese markets (Nikkei closed at an 8-month high) with USD/JPY
at 6-year highs above 107.35 in the week.

China's August
economic data suggested a more benign slowdown than feared last month,
diminishing the likelihood of broad PBoC easing. Imports fell for the second
consecutive month, but the trade surplus hit another record high of $49.8
billion, well above the $40 billion expected. August new yuan lending was also
marginally above consensus at CNY702.5B, alleviating credit sector concerns
after July lending fell to its lowest levels since early 2010. August CPI did
hit a four-month low of 2.0% and M2 money supply grew at a 5-month low pace of
12.8%, but the PBoC said overall money growth is still within a reasonable
range and on track to reach 13.0% target this year.

Japan Q2 final GDP showed an even bigger contraction than initially estimated
at -7.1% annualized. Private consumption was particularly soft, falling 5.1% on
reduced spending following the April sales tax hike, but the biggest downward
revision was seen in corporate capex, which was cut to -5.1% from -2.5%. On
Thursday, Bank of Japan governor Kuroda and PM Abe held their first direct meeting
in 5 months, boosting speculation that the cabinet will call on the central
bank to do more heavy lifting on monetary policy as it faces increased pressure
to increase sales tax again next year.

In today’s psychology lesson, I’m going to keep building on the strategy of using our trading journal , and more specifically, today I wan...

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